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a blog from young economists at Nova SBE

Resource Boom – Australia’s need for a mining tax

The need for minerals and natural resources has dramatically increased in the past decade and many mining companies in Australia are taking advantage of the industry’s “super profits”. Before the Australian Government introduced the Minerals Resource Rent Tax (MRRT) scheme, many firms dealing with non-renewable resources had higher expected earnings whilst still forfeiting minimal profits as royalties to the state governments as tax. At present, mining companies pay less than 20% of profit as tax, compared to approximately 40% in 2001. As such, it is clear that a reform needed to be established to allow the Australian public to receive a greater share in the skyrocketed profits from non-renewable resources.

Although the resource boom has significantly developed the Australian economy, it has also strengthened the Australian dollar which has caused many export industries to suffer, especially those in the agriculture. A new mining tax was introduced on the 1st July 2012 and imposed for approximately 30% of mineral and natural resource mining firms such that companies would be obliged to forfeit tax if their annual earnings exceeded $75 million. This implied that the new tax reform would not burden smaller business. The reform also saw tax breaks for suffering firms, where company tax was set to decrease from 30% to 28%.

It was estimated that $22.5 billion would be raised during the first four years of reform, and spent mostly on increased welfare payments, tax cuts for smaller business and infrastructure. Economically modelling suggests that the mining tax would benefit the average Australian worker with gains in revenue of $450 a year through tax breaks for smaller businesses and decreased cost of living. It was projected that inflation would drop by 1.1%, which would in turn facilitate the growing pressure on interest rates. As a result, the mining tax scheme would see Australia’s gross domestic product (GDP) increase by 0.7%.

There is still need for minerals and natural resources in the near future and as such, it is very important for tax reforms to be established to address the imbalances of the economy in a way such that the mining boom benefits the entire Australian population.

Daniel Chow 1558


Author: studentnovasbe

Master student in Nova Sbe

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